Elon Musk and Tesla Make Another Shocking Move

The electric vehicle maker just lowered the prices of its cars for the fifth time this year in the United States.

Elon Musk and Tesla continue to surprise consumers, investors and their rivals. 

The electric vehicle maker's determination to dominate the automotive industry has never been stronger than in recent months. 

Since January, Tesla  (TSLA) - Get Free Report has reduced the prices of its cars five times in the United States. The last movement of price cuts has just been made, confirming that the price war -- a good thing for consumers facing stubborn inflation -- between automakers is here to stay.

The new price cut affects its four passenger vehicle models. It ranges from $1,000 to $2,000 for the entry-level Model 3 sedan and Model Y SUV. These two models are Tesla's most popular and accounted for 97.5% of the 422,875 Tesla vehicles delivered in the first quarter.

The drop ranges however from $5,000 to around $14,000 this year.

A New version of the Model Y

The base Model 3 now costs $41,990 according to Tesla's website, which is down $1,000 from the list price on April 6. The Model 3 has seen its price drop by a cumulative $5,000, or 11% since January.

The Model 3 Performance version sees its price drop by a cumulative $10,000, or 16% since the start of the year. The base price of this vehicle is now $52,990 against $62,990 on Jan. 12. The Model Y Long Range SUV is now $52,990, down 20% from Jan. 12, while the Model Y Performance is priced at $56,990, down 19%, or $13,990, since the start of the year.

Tesla also introduced a new version of the Model Y with a starting price at $49,990.

The sharp drop in prices also impacts the two flagship models, the Model S luxury sedan and the Model X luxury SUV. Their prices drop by $5,000 compared to April 6.

But the drop since the start of the year ranges from $20,000 to $34,000. The regular Model S is now $84,990, down $20,000 this year, while the Model S Plaid now has a base price of $104,990, down $31,000. 

The base Model X costs $94,990, which represents a price drop of $26,000 or 21% compared to Jan. 12. Finally, the Model X Plaid now costs $104,990, down $34,000 or 25% this year.

Interestingly, the latest recent price cuts don't seem to have boosted sales of either model. Tesla only managed to deliver 10,695 Model S and Model X in the first quarter, which is the lowest quarterly level since the third quarter of 2021.

Tesla did not explain the reasons for this fifth price drop. But this comes at a time when the United States is about to adopt more draconian conditions to limit the federal tax credit of $7,500 granted to clean vehicles within the framework of the Inflation Reduction Act (IRA) adopted on last summer.

The Austin, Texas-based automaker previously warned that the Model 3 might not be eligible for the tax credit. By lowering prices, Tesla wants to ensure that EV buyers wanting to benefit from this subsidy do not eliminate its cars.

'There Is Plenty of Demand for Our Products'

The moves of the company and its charismatic CEO, however, divide the experts. Some believe that these consecutive price drops are a sign that Tesla is facing a drop in demand for its cars. The group is also sacrificing its profit margins, they fear.

"We're getting to a point where most of the price cuts have happened," Wedbush's analyst Dan Ives said. "They have to be more nimble in terms of these price cuts, because from a demand perspective, they gotta make sure they put an iron fence around their customer base because there's an EV arm race that's going on."

Other analysts speculate that Tesla is lowering prices to strangle competitors. The carmaker has high profit margins that allow it to lower its prices while preserving its profits, which is not the case with upstarts and legacy carmakers. Aware of this fact, Musk's group hopes to be able to increase its market share, say these experts.

At the end of January, Musk indicated that demand for Tesla cars was at an all-time high and that the price cut was intended to allow as many people as possible to buy vehicles from the brand often considered too expensive. He repeated the same argument on April 7.

"So many well off critics don’t understand that demand at scale is limited by affordability," the billionaire said on Twitter. "There is plenty of demand for our products, but if the price is more money than people have, that demand is irrelevant."